Following my name below is a case concerning that school.
The "integral agency" connection may be indicated in the following
observation from the case:

> Harvest Christian Academy is a parochial school
> in Pasadena, Texas. It is incorporated, and its
> board of directors includes parents of students
> and members of the affiliated church.

While it is not indicated that the "affiliated church" is a church of
Christ, the "integral agency" standard would appear to be met.

So, we gotta wonder. . .didn't they have enough foresight to get all
their employees ordained, exempted from Social Security and paid with
tax free housing allowance dollars?

It doesn't look like it. Instead, they ran up a tax tab and decided
not to pay it. So, the directors were held liable for the unpaid
taxes (at least the trust fund portion). I wonder if they are now
exploiting 70-549 in order to make sure that doesn't happen again.

[1] A private school had financial problems and decided not to pay
its employees' withheld taxes. The government secured a judgment
against a director personally for the taxes, and it wants to hold
another jointly responsible for them. Because of his control over the
finances, the second director is also liable.

2. Background.

[2] Harvest Christian Academy is a parochial school in Pasadena,
Texas. It is incorporated, and its board of directors includes
parents of students and members of the affiliated church. The board
has had approximately six directors.

[3] Michael Holmes began as a director and was promoted to chairman
of the board. He was not compensated for either job.

[4] In 1998, the school suffered a substantial drop in enrollment.
The loss of tuition made the school insolvent. The directors chose to
pay some creditors while negotiating with others. The board's goal
was to keep the school open as long as possible.

[5] The school's checks required two signatures. Holmes, Fred Floyd,
another director and Patricia Gehret, the school administrator, were
signatories. Holmes claims that he rarely signed checks and only did
so when the others were not available.

[6] Because of its financial problems, the school did not pay its
employees' withheld taxes for the last quarter of 1998 and the first
two quarters of 1999. Floyd, who was also the treasurer, told Holmes
about the tax liability from the beginning. Holmes discussed it with
the board, and he suggested cutbacks to free up cash to pay the
taxes. He claims that the board rejected his ideas. The total trust
fund liability for the three quarters is $ 117,476.03.

[7] In August 2001, the Internal Revenue Service assessed Floyd and
Holmes the full amount. Almost two years later, Floyd and Holmes
sued, arguing that they are not liable and that the service abused
its discretion by not assessing other board members and principals
for the taxes. The service counterclaimed, arguing that Floyd and
Holmes are jointly liable under federal law. See 26 U.S.C. section
6672. It moved for summary judgment against Holmes and Floyd. This
court has already held that Floyd is personally liable.

3. Responsibility.

[8] Under federal law, a company's agent who is responsible for the
collection and payment of employment taxes is liable to the
government for the amount of the taxes unpaid. See 26 U.S.C. section
6672(a); see also 26 U.S.C. sections 3102(a), 3402(a).

[9] A "responsible person" has some authority over the payment of the
taxes, like paying them himself, ordering their payment, or having
some control over the company's treasury. See Barnett v. Internal
Revenue Service, 988 F.2d 1449, 1456 (5th Cir. 1993); Braden v.
United States, 318 F. Supp. 1189 (S.D. Ohio 1970).

[10] Holmes, as chairman of the board, had enough responsibility to
be personally liable for the unpaid taxes. He knew about the tax
burden -- he signed a return showing that no tax deposits were made
for three months. Also, he signed several checks to some of the
school's creditors instead of paying the withheld taxes. He could
have seen that the taxes were paid but chose not to.

4. Orders.

[11] Holmes claims that his concern over the use of the withheld
taxes was ignored or rejected by the board, due in part to the
lobbying of Gehret. As chairman, he could have protested the use of
the funds or refused to follow the directive. Further, that the
school required two signatures on its checks is not a defense; it
simply shows that at least two people were jointly in control. See
Brown v. United States, 464 F.2d 590, 591 (5th Cir. 1972). Also,
Holmes is not immune from liability because he was a volunteer for
the school. See 26 U.S.C. section 6672(e). He had a real position, he
was involved in the financial operations of the school, and he knew
about the obligation to the government, His titles, positions, and
jobs were not honorary.

5. Selective Liability.

[12] The service may sue any or all of the school's agents who it
thinks are liable for the taxes because the liability is joint. See
Kelly v. Lethert, 362 F.2d 629 (8th Cir. 1966). The statute allows
Holmes to sue other agents for contribution, but he must seek it in
another suit. See 26 U.S.C. section 6672(d).

6. Conclusion.

[13] Along with Floyd, the government will recover jointly from
Holmes the balance of the unpaid employment taxes because he actively
participated in the diversion of the funds. Others may share in the
responsibility.

[1] A private school had financial problems and decided not to pay
its employees' withheld taxes. The government secured a judgment
against a director personally for the taxes, and it wants to hold
another jointly responsible for them. Because of his control over the
finances, the second director is also liable.

2. Background.

[2] Harvest Christian Academy is a parochial school in Pasadena,
Texas. It is incorporated, and its board of directors includes
parents of students and members of the affiliated church. The board
has had approximately six directors.

[3] Michael Holmes began as a director and was promoted to chairman
of the board. He was not compensated for either job.

[4] In 1998, the school suffered a substantial drop in enrollment.
The loss of tuition made the school insolvent. The directors chose to
pay some creditors while negotiating with others. The board's goal
was to keep the school open as long as possible.

[5] The school's checks required two signatures. Holmes, Fred Floyd,
another director and Patricia Gehret, the school administrator, were
signatories. Holmes claims that he rarely signed checks and only did
so when the others were not available.

[6] Because of its financial problems, the school did not pay its
employees' withheld taxes for the last quarter of 1998 and the first
two quarters of 1999. Floyd, who was also the treasurer, told Holmes
about the tax liability from the beginning. Holmes discussed it with
the board, and he suggested cutbacks to free up cash to pay the
taxes. He claims that the board rejected his ideas. The total trust
fund liability for the three quarters is $ 117,476.03.

[7] In August 2001, the Internal Revenue Service assessed Floyd and
Holmes the full amount. Almost two years later, Floyd and Holmes
sued, arguing that they are not liable and that the service abused
its discretion by not assessing other board members and principals
for the taxes. The service counterclaimed, arguing that Floyd and
Holmes are jointly liable under federal law. See 26 U.S.C. section
6672. It moved for summary judgment against Holmes and Floyd. This
court has already held that Floyd is personally liable.

3. Responsibility.

[8] Under federal law, a company's agent who is responsible for the
collection and payment of employment taxes is liable to the
government for the amount of the taxes unpaid. See 26 U.S.C. section
6672(a); see also 26 U.S.C. sections 3102(a), 3402(a).

[9] A "responsible person" has some authority over the payment of the
taxes, like paying them himself, ordering their payment, or having
some control over the company's treasury. See Barnett v. Internal
Revenue Service, 988 F.2d 1449, 1456 (5th Cir. 1993); Braden v.
United States, 318 F. Supp. 1189 (S.D. Ohio 1970).

[10] Holmes, as chairman of the board, had enough responsibility to
be personally liable for the unpaid taxes. He knew about the tax
burden -- he signed a return showing that no tax deposits were made
for three months. Also, he signed several checks to some of the
school's creditors instead of paying the withheld taxes. He could
have seen that the taxes were paid but chose not to.

4. Orders.

[11] Holmes claims that his concern over the use of the withheld
taxes was ignored or rejected by the board, due in part to the
lobbying of Gehret. As chairman, he could have protested the use of
the funds or refused to follow the directive. Further, that the
school required two signatures on its checks is not a defense; it
simply shows that at least two people were jointly in control. See
Brown v. United States, 464 F.2d 590, 591 (5th Cir. 1972). Also,
Holmes is not immune from liability because he was a volunteer for
the school. See 26 U.S.C. section 6672(e). He had a real position, he
was involved in the financial operations of the school, and he knew
about the obligation to the government, His titles, positions, and
jobs were not honorary.

5. Selective Liability.

[12] The service may sue any or all of the school's agents who it
thinks are liable for the taxes because the liability is joint. See
Kelly v. Lethert, 362 F.2d 629 (8th Cir. 1966). The statute allows
Holmes to sue other agents for contribution, but he must seek it in
another suit. See 26 U.S.C. section 6672(d).

6. Conclusion.

[13] Along with Floyd, the government will recover jointly from
Holmes the balance of the unpaid employment taxes because he actively
participated in the diversion of the funds. Others may share in the
responsibility.